Choe, B.-H., Climate Finance under Limited Commitment and Renegotiations: A Dynamic Contract Approach, Journal of Risk and Financial Management (2026)


First-best Benchmark


(a) Climate cost \(C_{FB}(G)\)

(b) Dynamics of GHG stock

(c) Adaptation and mitigation funding levels

(d) Adaptation and mitigation funding shares

Figure 1. First-best benchmarks. Author’s own elaboration.


Second-best Simulation


(a) Difference in climate cost, \(C(w_t,G_t)-C_{FB}(G_t)\)

(b) Difference in GHG stock, \(G_{SB,t}-G_{FB,t}\)

(c) Promised contribution value, \(w_t\)

(d) Total funding, \(I_t\)

(e) Adaptation funding, \(a_t\)

(f) Mitigation funding, \(m_t\)

(g) Adaptation share, \(a_t/I_t\)

(h) Mitigation share, \(m_t/I_t\)

Figure 2. Comparison of dynamics under the first-best and the second-best (SB) contract for \(\rho\in\{0.80, 0.85, 0.90, 0.95, 1.00\}\), with initial total funding set to \(8\%\) of the first-best level in 2015. Author’s own elaboration.